Uses for a graduate loan

It's usually up to you what you use your loan for, but it could be useful for those who want to continue their studies and pursue a postgraduate degree.

It could also potentially be used to set up your own business and help get it off the ground, or if you need to buy a car for transport to a new job.

"As with any lending, weigh up the total cost of ownership," said Gocompare.com's Matt Sanders. "What will the loan allow you to do? How much in total will you repay?

"That holiday, car or big purchase can end up costing hundreds more if you're not careful with interest rates and repayment plans."

Graduate loan interest rates

On a loan product, the interest charged is expressed as the annual percentage rate (APR), which by law must be shown on any loan advertised.

However, this advertised rate only needs to be actually given to 51% of successful applicants.

The APR might vary depending on the loan amount and the loan term, and the lender will consider your circumstances before deciding on the loan rate and amount.

Graduate loans tend to have a relatively low interest rate to help recent students get on their feet, but it's always worth checking the rate against other loans on the market, including peer-to-peer options.

Note that Gocompare.com's loan comparison service allows you to use a smart search tool. This means that, by entering a few simple details, you can conduct what's known as a soft search, allowing you to see the deals you're likely to qualify for without impacting on credit scores held about you.

Note that some lenders will charge a fee for paying off your loan before the term is completed, to compensate them for losing out on potential interest earned on the loan over the total term periodMatt Sanders, Gocompare.com

Criteria for application

As well as being a graduate, generally you'll need to hold a graduate account with the provider before you're able to take out a specific graduate loan with them.

Often, you'll also need to have graduated within a specified time limit.

The loan amount you're offered will depend on the lender's assessment of your circumstances, which could include your personal details, past account history and any credit repayment history.

Alternatives to a graduate loan

If you intend to carry on your studying at postgraduate level you may be able to get access to a grant or bursary if you're from a household with a low income, or if you've achieved academic excellence in a particular field.

Same-day funds

If you're really strapped for money and need an instant cash injection, some lenders may be prepared to offer you a same-day loan, so you would receive the lump sum on the day your application was completed.

Although this may be a tempting option, you'll usually be charged for this service.

Repaying your graduate loan

Generally, you'll need to repay your loan by direct debit, so make sure that your account can support this type of transaction and that you have funds in your account to make your payments when they're due.

Deferring payment

"There may be an option to leave a predetermined period of time between when you first take out your loan and make your first repayment," said Sanders.

"Be aware that although you may not be making repayments, you'll be still be charged interest over the deferment period, so you'll be paying off more in the long run."

Repayment holidays

Your loan provider may also offer the option of a repayment holiday part-way through the loan - for example, you may not have to make loan repayments during January.

If you intend to carry on your studying at a postgraduate level, you may be able to get access to a grant or bursary if you're from a household with a low income, or have achieved academic excellence in a particular field

However, you'll still be charged interest over this period so - as with deferred payments - the total amount that you have to repay will actually increase.

Also, you may be charged a fee for these breaks in repayment.

Overpaying and early repayments

If you're in the position to make overpayments, a lump sum payment, or full early repayment of the loan, this could help to reduce the amount of interest that you have to pay over the term.

However, make sure that you read the terms and conditions of your loan carefully to check whether you'll be charged for making an overpayment or early repayment, and how much this will be.

"If there's the possibility of paying off your loan early, you'll need to notify your lender so that they're able to draw up an early settlement adjustment," said Sanders.

"Note that some lenders will charge a fee for paying off your loan before the term is completed, to compensate them for losing out on potential interest earned on the loan over the total term period."

Professional and career development loans

If your reason for wanting a loan is to continue your studies, a professional and career development loan may be an option.

Professional and career development loans are bank-funded loans designed specifically for approved educational courses, for example postgraduate and management courses.

The loans are for courses lasting up to two years, or three if there's a placement year.

Protecting repayments

This type of policy can cover your repayments if you're not able to make them due to accident, sickness or unemployment.

The Skills Funding Agency will pay the interest on the loan for the duration of your course and for one month after it's finished.

Unlike a student loan, a professional or career development loan isn't linked to your salary, so after one month you'll be required to make your repayments on time to avoid paying charges.

Note that you'll need to repay the loan whether or not you finish the course.

These loans can be used to cover course fees, additional costs like travel, books, equipment or childcare. It can be also used for living expenses if you work less than 30 hours a week, so long as they're not already covered by any other government benefit.

Part of the loan will be released directly in instalments to the institution where you're studying, so you won't be able to spend the full amount in whatever way you wish. For more information, visit the government's website.†

By Abbie Laughton-Coles

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